-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, L40J14osB3RvDVul+SPgFYvKrVjboVv5Xgr2YdrRQMbNzwxJoV/0SKcHwC0qVr6h ys7sK28YhKoxQAelV7i5QA== 0000741612-94-000018.txt : 19941129 0000741612-94-000018.hdr.sgml : 19941129 ACCESSION NUMBER: 0000741612-94-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TNP ENTERPRISES INC CENTRAL INDEX KEY: 0000741612 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 751907501 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08847 FILM NUMBER: 94559226 BUSINESS ADDRESS: STREET 1: 4100 INTERNATIONAL PLZ STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEXAS NEW MEXICO POWER CO CENTRAL INDEX KEY: 0000022767 STANDARD INDUSTRIAL CLASSIFICATION: 4911 IRS NUMBER: 750204070 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-97230 FILM NUMBER: 94559227 BUSINESS ADDRESS: STREET 1: 4100 INTERNATIONAL PLZ STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 BUSINESS PHONE: 8177310099 MAIL ADDRESS: STREET 2: PO BOX 2943 CITY: FORT WORTH STATE: TX ZIP: 76113 FORMER COMPANY: FORMER CONFORMED NAME: COMMUNITY PUBLIC SERVICE CO DATE OF NAME CHANGE: 19810617 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-8847 TNP ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Texas 75-1907501 State of Incorporation I.R.S. Employer Identification Number 4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113 (Address of Registrant's Principal Executive Offices) Telephone Number: 817-731-0099 Commission File Number: 2-97230 TEXAS-NEW MEXICO POWER COMPANY (Exact name of registrant as specified in its charter) Texas 75-0204070 State of Incorporation I.R.S. Employer Identification Number 4100 International Plaza, P. O. Box 2943, Fort Worth, Texas 76113 (Address of Registrant's Principal Executive Offices) Telephone Number: 817-731-0099 Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes X No As of October 31, 1994, TNP Enterprises, Inc. had outstanding 10,811,585 shares of common stock, no par value. As of October 31, 1994, all 10,705 outstanding shares of Texas-New Mexico Power Company's common stock ($10 par value), were held, beneficially and of record, by TNP Enterprises, Inc. TNP ENTERPRISES INC. AND SUBSIDIARIES TEXAS NEW-MEXICO POWER COMPANY AND SUBSIDIARIES Form 10-Q for the period ended September 30, 1994 This combined Form 10-Q is separately filed by TNP Enterprises, Inc. and Texas-New Mexico Power Company. Information contained herein relating to Texas-New Mexico Power Company is filed by TNP Enterprises, Inc. and separately by Texas-New Mexico Power Company on its own behalf. Texas-New Mexico Power Company makes no representation as to information relating to TNP Enterprises, Inc., except as it may relate to Texas-New Mexico Power Company, or to any other affiliate or subsidiary of TNP Enterprises, Inc.
TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE NO. Item 1. Consolidated Financial Statements (Unaudited for Periods Ended September 30, 1994 and 1993) TNP Enterprises, Inc. and Subsidiaries: Consolidated Statements of Operations Three-Month and Nine-Month Periods Ended September 30, 1994 and 1993 3 Consolidated Balance Sheets September 30, 1994 and December 31, 1993 4 Consolidated Statements of Cash Flows Nine-Month Periods Ended September 30, 1994 and 1993 5 Texas-New Mexico Power Company and Subsidiaries: Consolidated Statements of Operations Three-Month and Nine-Month Periods Ended September 30, 1994 and 1993 6 Consolidated Balance Sheets September 30, 1994 and December 31, 1993 7 Consolidated Statements of Cash Flows Nine-Month Periods Ended September 30, 1994 and 1993 8 Notes to Consolidated Financial Statements 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 6. Exhibits and Reports on Form 8-K 16 (a) Exhibit Index 16 (b) Reports on Form 8-K 16 Signature page (TNPE) 17 Signature page (TNP) 17
PART I - FINANCIAL INFORMATION Item 1.Consolidated Financial Statements. The following interim consolidated financial statements of TNP Enterprises, Inc. ("TNPE") and subsidiaries and Texas-New Mexico Power Company ("TNMP") and subsidiaries are unaudited but, in the opinion of management, reflect all adjustments consisting of the provision for regulatory disallowances and the normal recurring accruals which are necessary for the fair statement of the results of the interim periods presented. Results for interim periods are not necessarily indicative of the results to be expected for a full year or for periods which have been previously reported, due in part to the seasonal fluctuations in revenues and possible developments in regulatory and judicial proceedings. Amounts shown for TNPE and TNMP at December 31, 1993, are based on audited consolidated financial statements appearing in TNPE's 1993 Annual Report and TNMP's 1993 Annual Report on Form 10- K, respectively.
TNP ENTERPRISES, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (In Thousands Except Per Share Amounts) Operating revenues $149,864 150,067 368,509 360,747 Operating expenses: Power purchased for resale 59,788 61,872 151,790 151,571 Fuel 14,793 14,317 35,722 33,962 Other operating and general expenses 18,387 17,397 54,240 52,771 Maintenance 2,929 2,619 8,990 8,549 Depreciation of utility plant 9,132 9,014 27,459 26,959 Taxes, other than on income 8,853 8,901 23,443 23,531 Income taxes (note 3) 4,998 6,371 2,555 3,652 Total operating expenses 118,880 120,491 304,199 300,995 Net operating income 30,984 29,576 64,310 59,752 Other income (loss): Provision for regulatory disallowances (note 4) - - (31,546) - Other income and deductions, net 761 488 898 1,497 Income taxes (notes 3,4) (787) (169) 10,189 (512) Other income (loss), net of taxes (26) 319 (20,459) 985 Earnings before interest charges 30,958 29,895 43,851 60,737 Interest charges: Interest on long-term debt 18,028 15,408 53,720 46,276 Other interest and amortization of debt discount, premium and expense 1,059 994 2,959 3,385 Allowance for borrowed funds used during construction (50) (86) (211) (227) Total interest charges 19,037 16,316 56,468 49,434 Net earnings (loss) 11,921 13,579 (12,617) 11,303 Dividends on preferred stock (189) (211) (601) (668) Earnings (loss) applicable to common stock $11,732 13,368 (13,218) 10,635 Weighted average number of common shares outstanding 10,752 10,653 10,726 10,628 Earnings (loss) per share of common stock $ 1.09 1.25 (1.23) 1.00 Dividends per share of common stock $0.2000 0.4075 1.0150 1.2225 See accompanying notes to consolidated financial statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES Consolidated Balance Sheets September 30, 1994 December 31, ASSETS (Unaudited) 1993 (In Thousands) Utility plant, at original cost: Electric plant $1,221,683 1,203,636 Construction work in progress 3,426 5,282 1,225,109 1,208,918 Less accumulated depreciation 224,851 202,923 Utility plant less accumulated depreciation 1,000,258 1,005,995 Less reserve for regulatory disallowances (note 4) 31,546 - Net utility plant 968,712 1,005,995 Nonutility property, at cost 1,309 1,673 Current assets: Cash and cash equivalents 13,381 12,423 Investment securities 5,522 - Customer receivables 5,128 764 Inventories, at lower of average cost or market: Fuel 1,152 1,422 Materials and supplies 7,708 7,793 Deferred purchased power and fuel costs 16,222 15,151 Accumulated deferred taxes on income 5,165 4,251 Other current assets 1,175 1,071 Total current assets 55,453 42,875 Regulatory tax assets 17,470 16,915 Deferred charges 34,290 37,779 $1,077,234 1,105,237 CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity: Common stock, no par value per share. Authorized 50,000,000 shares; issued 10,796,655 shares in 1994 and 10,695,860 shares in 1993 $133,118 131,615 Retained earnings (note 2) 57,911 82,012 Total common stock equity 191,029 213,627 Redeemable cumulative preferred stock 8,860 9,560 Long-term debt, net of amount due within one year (note 1) 686,923 678,994 Total capitalization 886,812 902,181 Current liabilities: Long-term debt due within one year 1,070 1,070 Accounts payable 25,139 22,450 Accrued interest 7,372 16,115 Accrued taxes 17,887 17,221 Customers' deposits 4,459 4,464 Revenues subject to refund (note 4) 4,606 3,400 Other current and accrued liabilities 13,445 13,581 Total current liabilities 73,978 78,301 Regulatory tax liabilities 47,789 49,314 Accumulated deferred taxes on income 50,792 57,093 Accumulated deferred investment tax credits 17,863 18,348 Commitments and contingencies (notes 3,4,5) $1,077,234 1,105,237 See accompanying notes to consolidated financial statements.
TNP ENTERPRISES, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, September 30, 1994 1993 (In Thousands) CASH FLOWS FROM OPERATIONS: Net earnings (loss) $(12,617) 11,303 Items not requiring cash: Depreciation of utility plant 27,459 26,959 Amortization of debt expense, discount and premium and other deferred charges 4,399 3,536 Allowance for borrowed funds used during construction (211) (227) Deferred taxes on income (9,230) 2,942 Investment tax credit adjustments (485) (353) Provision for regulatory disallowances 31,546 - 40,861 44,160 Changes in certain current assets and liabilities: Customer receivables (4,364) (4,404) Inventories 355 (1,331) Deferred purchased power and fuel costs (1,071) 5,164 Other current assets (104) (966) Accounts payable 2,689 30 Accrued interest (8,743) (1,666) Accrued taxes 666 (2,670) Customers' deposits (5) 177 Revenues subject to refund 1,206 (14,479) Other current and accrued liabilities (136) 5,256 Other - net (876) 1,647 TOTAL 30,478 30,918 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant, net of capitalized depreciation and interest (21,218) (18,031) Purchases of investment securities (5,522) - TOTAL (26,740) (18,031) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on preferred and common stocks (11,484) (13,661) Issuances: Common stock 1,503 1,292 Borrowings under secured notes payable 151,500 - Other long-term debt - 240,000 Deferred expenses associated with financings - (8,815) Redemptions: Preferred stock (700) (700) Repayments under secured notes payable (142,529) - Other long-term debt (1,070) (278,837) TOTAL (2,780) (60,721) NET CHANGE IN CASH AND CASH EQUIVALENTS 958 (47,834) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,423 86,785 CASH AND CASH EQUIVALENTS AT END OF PERIOD $13,381 38,951 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the periods for: Interest $62,633 49,285 Income taxes 56 2,790 SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES: On January 1, 1993, TNPE recognized certain assets and liabilities as the result of implementation of Statement of Financial Accounting Standards No. 109. See accompanying notes to consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, 1994 1993 1994 1993 (In Thousands) Operating revenues $149,864 150,067 368,509 360,747 Operating expenses: Power purchased for resale 59,788 61,872 151,790 151,571 Fuel 14,793 14,317 35,722 33,962 Other operating and general expenses 18,387 17,397 54,240 52,771 Maintenance 2,929 2,619 8,990 8,549 Depreciation of utility plant 9,132 9,014 27,459 26,959 Taxes, other than on income 8,853 8,901 23,443 23,531 Income taxes (note 3) 4,998 6,371 2,555 3,652 Total operating expenses 118,880 120,491 304,199 300,995 Net operating income 30,984 29,576 64,310 59,752 Other income (loss): Provision for regulatory disallowances (note 4) - - (31,546) - Other income and deductions, net 888 480 1,239 1,518 Income taxes (notes 3,4) (320) (163) 10,581 (516) Other income (loss), net of taxes 568 317 (19,726) 1,002 Earnings before interest charges 31,552 29,893 44,584 60,754 Interest charges: Interest on long-term debt 18,028 15,408 53,720 46,276 Other interest and amortization of debt discount, premium and expense 1,059 994 2,959 3,385 Allowance for borrowed funds used during construction (50) (86) (211) (227) Total interest charges 19,037 16,316 56,468 49,434 Net earnings (loss) 12,515 13,577 (11,884) 11,320 Dividends on preferred stock (189) (211) (601) (668) Earnings (loss) applicable to common stock $12,326 13,366 (12,485) 10,652 See accompanying notes to consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES Consolidated Balance Sheets September 30, 1994 December 31, ASSETS (Unaudited) 1993 (In Thousands) Utility plant, at original cost: Electric plant $1,221,683 1,203,636 Construction work in progress 3,426 5,282 1,225,109 1,208,918 Less accumulated depreciation 224,851 202,923 Utility plant less accumulated depreciation 1,000,258 1,005,995 Less reserve for regulatory disallowances (note 4) 31,546 - Net utility plant 968,712 1,005,995 Nonutility property, at cost 183 541 Current assets: Cash and cash equivalents 8,637 2,078 Customer receivables 5,128 764 Inventories, at lower of average cost or market: Fuel 1,152 1,422 Materials and supplies 7,708 7,793 Deferred purchased power and fuel costs 16,222 15,151 Accumulated deferred taxes on income 5,165 4,251 Other current assets 1,723 1,091 Total current assets 45,735 32,550 Regulatory tax assets 17,470 16,915 Deferred charges 35,634 39,118 $1,067,734 1,095,119 CAPITALIZATION AND LIABILITIES Capitalization: Common stock equity: Common stock, $10 par value per share. Authorized 12,000,000 shares; issued 10,705 shares $107 107 Capital in excess of par value 175,094 175,094 Retained earnings (note 2) 17,698 38,983 Total common stock equity 192,899 214,184 Redeemable cumulative preferred stock 8,860 9,560 Long-term debt, net of amount due within one year (note 1) 686,923 678,994 Total capitalization 888,682 902,738 Current liabilities: Long-term debt due within one year 1,070 1,070 Accounts payable 25,139 22,450 Accrued interest 7,372 16,115 Accrued taxes 17,938 18,006 Customers' deposits 4,459 4,464 Revenues subject to refund (note 4) 4,606 3,400 Other current and accrued liabilities 13,436 13,573 Total current liabilities 74,020 79,078 Regulatory tax liabilities 47,789 49,314 Accumulated deferred taxes on income 40,589 46,907 Accumulated deferred investment tax credits 16,654 17,082 Commitments and contingencies (notes 3,4,5) $1,067,734 1,095,119 See accompanying notes to consolidated financial statements.
TEXAS-NEW MEXICO POWER COMPANY AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, September 30, 1994 1993 (In Thousands) CASH FLOWS FROM OPERATIONS: Net earnings (loss) $(11,884) 11,320 Items not requiring cash: Depreciation of utility plant 27,459 26,959 Amortization of debt expense, discount and premium and other deferred charges 4,399 3,536 Allowance for borrowed funds used during construction (211) (227) Deferred taxes on income (9,246) 2,944 Investment tax credit adjustments (428) (352) Provision for regulatory disallowances 31,546 - 41,635 44,180 Changes in certain current assets and liabilities: Customer receivables (4,364) (4,404) Inventories 355 (1,331) Deferred purchased power and fuel costs (1,071) 5,164 Other current assets (632) (762) Accounts payable 2,689 30 Accrued interest (8,743) (1,666) Accrued taxes (68) (1,910) Customers' deposits (5) 177 Revenues subject to refund 1,206 (14,479) Other current and accrued liabilities (137) 5,343 Other - net (888) (514) TOTAL 29,977 29,828 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to utility plant, net of capitalized depreciation and interest (21,218) (18,031) CASH FLOWS FROM FINANCING ACTIVITIES: Dividends on preferred and common stocks (9,401) (13,676) Issuances: Borrowings under secured notes payable 151,500 - Other long-term debt - 240,000 Deferred expenses associated with financing - (8,815) Redemptions: Preferred stock (700) (700) Repayments under secured notes payable (142,529) - Other long-term debt (1,070) (278,837) TOTAL (2,200) (62,028) NET CHANGE IN CASH AND CASH EQUIVALENTS 6,559 (50,231) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,078 63,843 CASH AND CASH EQUIVALENTS AT END OF PERIOD $8,637 13,612 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the periods for: Interest $62,633 49,285 Income taxes 944 1,915 SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES: On January 1, 1993, TNMP recognized certain assets and liabilities as the result of implementation of Statement of Financial Accounting Standards No. 109. See accompanying notes to consolidated financial statements.
(1) Long-term Debt
Long-term debt outstanding was as follows: September 30, December 31, 1994 1993 (In Thousands) First mortgage bonds: Series L, 10.500% due 2000 $9,720 9,840 Series M, 8.700 due 2006 8,300 8,400 Series R, 10.000 due 2017 63,050 63,700 Series S, 9.625 due 2019 19,800 20,000 Series T, 11.250 due 1997 130,000 130,000 Series U, 9.250 due 2000 100,000 100,000 Total 330,870 331,940 Unamortized discount, net of premium (649) (676) First mortgage bonds, net 330,221 331,264 Secured debentures: 12.50% due 1999 130,000 130,000 Series A, 10.75% due 2003 140,000 140,000 270,000 270,000 Secured notes payable 87,772 78,800 Total long-term debt 687,993 680,064 Less long-term debt due within one year (1,070) (1,070) Total long-term debt, net $686,923 678,994
(2) Retained Earnings Restriction The Bond Indenture under which first mortgage bonds are issued contains restrictions as to the payment of cash dividends on common stock of TNMP. Due to the provision made during the second quarter of 1994 for certain regulatory disallowances (discussed in note 4), TNMP's unrestricted retained earnings were eliminated requiring a suspension of cash dividends on TNMP's common stock solely held by TNPE. As a result of generating approximately $12.3 million in third quarter earnings applicable to common stock, TNMP's unrestricted retained earnings were restored to a level of approximately $4.2 million; however, based upon the seasonal nature of TNMP's operations, TNMP's unrestricted retained earnings at September 30, 1994 may be eliminated by seasonal operations in the next two quarters. Information concerning TNMP's retained earnings is summarized below:
Sept. 30, June 30, March 31, Dec. 31, 1994 1994 1994 1993 (In Thousands) Total retained earnings $17,698 5,373 31,574 38,983 Less restricted level required by Bond Indenture before payment of common stock dividends 13,517 13,517 13,117 12,817 Unrestricted retained earnings $4,181 (8,144) 18,457 26,166 The provision for regulatory disallowances will not impair the ability of TNMP to pay cash dividends on its preferred stock.
(3) Income Taxes (a) TNP Enterprises, Inc. and Subsidiaries Income taxes as set forth in TNPE's consolidated statements of operations consisted of the following components:
Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1994 1993 1994 1993 (In Thousands) Charged (credited) to operating expenses: Current Federal $2,396 727 1,052 783 Current State 80 166 136 277 Deferred Federal 2,023 5,440 1,795 2,944 Investment tax credit adjustments, net 499 38 (428) (352) Total charged to operating expenses 4,998 6,371 2,555 3,652 Charged to other income (loss): Current Federal 786 167 893 515 Deferred Federal 48 2 (11,025) (2) Investment tax credit adjustments (47) - (57) (1) Total charged to other income (loss) 787 169 (10,189) 512 Total $5,785 6,540 (7,634) 4,164
TNPE's Federal income tax returns for 1990 and 1991 are currently under audit by the Internal Revenue Service ("IRS"). In 1991, TNPE received a private letter ruling from the IRS which confirmed Unit 1 of the TNP One generating plant as being qualified, transitional property eligible for investment tax credits ("ITC"). The IRS revenue agent has informally advised TNPE that he will recommend that the private letter ruling be revoked which could lead to a denial of TNPE's claim for the ITC. Management believes the claim for ITC is correct and valid; however, if the revenue agent's position is upheld, an eventual denial of the ITC would have a negative effect on future cash flows to the extent of ITC utilized on TNPE's tax returns and any related interest and penalties. Of the $22 million of ITC at issue, TNPE and its subsidiaries have utilized approximately $5 million in the consolidated tax returns. (b) Texas-New Mexico Power Company and Subsidiaries Income taxes as set forth in TNMP's consolidated statements of operations consisted of the following components:
Three Months Ended Nine Months Ended Sept. 30, Sept. 30, Sept. 30, Sept. 30, 1994 1993 1994 1993 (In Thousands) Charged (credited) to operating expenses: Current Federal $2,396 727 1,052 783 Current State 80 166 136 277 Deferred Federal 2,023 5,440 1,795 2,944 Investment tax credit adjustments, net 499 38 (428) (352) Total charged to operating expenses 4,998 6,371 2,555 3,652 Charged to other income (loss): Current Federal 320 163 460 516 Deferred Federal - - (11,041) - Total charged to other income (loss) 320 163 (10,581) 516 Total $5,318 6,534 (8,026) 4,168
Reference is made to part (a) of this note which discusses a current audit of TNPE's 1990 and 1991 Federal Income Tax returns. The loss of TNPE's claim for ITC would have a similar negative effect on TNMP's future cash flows. Of the $22 million of ITC at issue, TNMP has utilized approximately $4 million to date. (4) Regulatory Matters On October 6, 1994, the Public Utility Commission of Texas ("PUCT") issued a final order approving a unanimous settlement agreement among the parties in TNMP's most recent Texas retail rate application. TNMP had requested an increase of $34.8 million, or 8.9%, over annualized test year revenues. TNMP's request included the remaining $11.1 million of Unit 2 costs in rate base, as prescribed in a previous rate case. The final order provides for an increase in annualized revenues of $17.5 million, or 4.5%, which TNMP implemented on October 2, 1994. The final order and the settlement agreement resolve all outstanding court appeals in connection with TNMP's two previous rate cases and provides for TNMP to write off $35 million of the PUCT's total disallowances of $61.4 million regarding TNP One. TNMP recognized the write-off in the second quarter of 1994. For a discussion of the judicial appeals of TNMP's rate orders in the two previous Texas retail rate applications and certain other matters concerning the Texas rate base treatment of TNP One, reference is made to note 5 of both the "Notes to Consolidated Financial Statements" included in TNPE's 1993 Annual Report, incorporated by reference in TNPE's 1993 Annual Report on Form 10-K and the "Notes to Consolidated Financial Statements" included in TNMP's 1993 Annual Report on Form 10- K, for TNPE and TNMP, which notes are incorporated herein by reference. The final order further includes a moratorium restricting TNMP from filing applications for rate increases in Texas for a five-year period beginning March 31, 1994, subject to certain conditions. Those conditions do not allow TNMP to file for any base rate increase under any circumstances prior to March 31, 1997 but would allow an application for increased rates to be filed after that time if certain force majeure events (as defined in the agreement) occur at any time during the five-year moratorium period. At September 30, 1994, revenues subject to refund totaled $4.6 million under a tax-related issue from the previous rate case. The recent final order does not change the status of the $1.6 million in additional annualized revenues granted to TNMP, subject to refund, by the PUCT in the previous rate case. These revenues subject to refund have not been reflected in the results of operations as of September 30, 1994. Recognition of these revenues is conditioned upon TNMP obtaining a private letter ruling from the IRS supporting TNMP's position on certain related income tax consequences. The private letter ruling will not affect revenues related to electricity sales on and after October 2, 1994, when the new rates in the most recent rate case were implemented. While there can be no assurances given, based upon a similar revenue ruling received by an unrelated utility, TNMP expects to receive a favorable ruling before the end of 1994. An unfavorable ruling would result in a refund to TNMP's Texas customers of the $4.6 million of deferred revenues and in the recognition of a regulatory liability for the income tax benefits of a portion of the disallowances recognized. The accompanying consolidated financial statements of TNMP and TNPE for the nine months ended September 30, 1994 include a provision for $35 million of the disallowances, which resulted in an after-tax charge to results of operations of approximately $20.5 million, or $1.91 per share of TNPE common stock, as detailed below: Disallowances recognized under the settlement agreement $35,000,000 Less accumulated depreciation previously recognized 3,453,930 Provision for regulatory disallowances 31,546,070 Less related income taxes 11,041,025 Provision for regulatory disallowances, after income taxes $20,505,045 Weighted average number of TNPE common shares outstanding 10,726,000 Loss per share of TNPE common stock $ 1.91
(5) Early Retirement Package On August 29, 1994, TNMP announced a voluntary early retirement package for employees who would be age 55 or older and would have 10 or more years of service with TNMP as of December 31, 1994. Of TNMP's 75 employees eligible for the package, 70 employees accepted the package. Annual pretax cash savings of slightly more than $3.6 million will result for TNMP starting in 1995. The costs associated with the early retirement package, including post-retirement benefits, will be funded through TNMP's pension plan trust and TNMP's post-retirement medical and death benefits trust. The package is not expected to require any cash payments by TNMP in the next few years; however, TNMP will have to recognize in the fourth quarter of 1994 a one-time expense of about $6.4 million before taxes to reflect the increased actuarial liabilities for the pension and post-retirement benefits costs. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This discussion presents management's analysis of significant factors in TNPE's and TNMP's consolidated financial condition and results of operations and should be read in conjunction with related consolidated financial statements and notes thereto. TNPE's consolidated assets, liabilities and earnings capability are principally those of TNMP. TNPE's nonutility earnings consist mainly of interest income on short-term investments. Financial Condition Regulatory Matters On October 6, 1994, the PUCT issued a final order approving a unanimous settlement agreement among the parties involved in TNMP's most recent Texas rate case. The final order provides for an increase in annualized revenues of $17.5 million, or 4.5%, which TNMP implemented on October 2, 1994. The final order and the settlement agreement resolve all outstanding court appeals in connection with TNMP's two previous rate cases and provided for TNMP to write off $35 million of the PUCT's total disallowances of $61.4 million regarding TNP One. TNMP recorded a provision for the write-off in the second quarter of 1994. Under no circumstances may TNMP file another Texas rate application prior to March 31, 1997. After that date but before March 31, 1999, TNMP may file another Texas rate application only upon the occurrence during the five years ending March 31, 1999 of certain events which are: - Changes in Federal income taxes exceeding $2.5 million, - Legislative or regulatory actions exceeding $2.5 million, - Inflation greater than 8% for one year, - 30 year U.S. Treasury Bond yield greater than 8.75% for six months, and/or - Base revenue decrease greater than $2.5 million. Liquidity and Capital Resources TNMP's 1994 capital requirements consist of (1) payments for additions to utility plant and (2) bond sinking fund payments and maturities and preferred stock redemptions. Capital requirements of $23 million for the nine months ended September 30, 1994 were funded with approximately $20.5 million in cash flows from operations (after payment of cash dividends on common and preferred stocks) and reborrowings under the Unit 2 financing facility. TNMP expects that the remaining capital requirements for 1994 of about $5 million will be funded internally with cash flows from operations. TNMP's capital requirements for plant additions over the next several years are expected to be met with cash flows from operations. TNMP's next major capital requirement will be $130 million for the maturity of Series T, First Mortgage Bonds, which mature on January 15, 1997. In order to fund the $130 million needed for the maturity of Series T Bonds, TNMP expects to use a combination of cash flows from operations and proceeds from issuances of additional debt and equity. TNMP has the ability to borrow under the Unit 2 financing facility the unused portion of its $147.75 million commitment. The commitment reduces in annual increments of $36.9 million beginning December 31, 1995. At September 30, 1994, TNMP had the ability to borrow an additional $60 million under the financing facility. TNPE's Common Stock Dividend TNPE's common stock dividend for the third quarter was $0.20 per share, a 51% decrease from the previous quarterly dividend of $0.4075 per common share. One factor which led to the Board of Directors' decision to reduce the dividend was the suspension of cash dividends on TNMP's common stock (to TNPE) in the third quarter. This suspension was caused by TNMP's provision for the write-off of the $35 million in regulatory disallowances during the second quarter of 1994 which eliminated TNMP's unrestricted retained earnings. At September 30, 1994 TNPE had approximately $10 million in unconsolidated cash and investments which could be used for payment of dividends on its common stock; however, in the long-term, TNPE's ability to pay dividends on its common stock is dependent upon TNMP's ability to pay dividends to TNPE. As a result of generating approximately $12.3 million in third quarter earnings applicable to common stock, TNMP's unrestricted retained earnings were restored to a level of approximately $4.2 million; however, based upon the seasonal nature of TNMP's operations, TNMP's unrestricted retained earnings at September 30, 1994 may be eliminated by seasonal operations in the next two quarters. TNMP anticipates, assuming that no abnormal circumstances occur during the next twelve months, that it will again have sufficient unrestricted retained earnings before September 30, 1995 to permit the resumption of payment of cash dividends on TNMP's common stock. Early Retirement Package During the third quarter, TNMP offered a voluntary early retirement package which now has been accepted by most of the eligible employees. This action will result in annual pretax cash savings of about $3.6 million starting in 1995. The costs associated with the early retirement package, including post-retirement benefits, will be funded through TNMP's pension plan trust and TNMP's post-retirement medical and death benefit trust. The package is not expected to require any cash payments by TNMP in the next few years; however, TNMP will have to recognize in the fourth quarter of 1994 a one-time expense of about $6.4 million before taxes to reflect the increased actuarial liabilities for the pension and post-retirement benefits costs. TNMP Prepares Texas Panhandle Solicitation In the settlement of the recent Texas rate case, TNMP agreed with its Texas Panhandle cities to sell or transfer its Texas Panhandle properties if certain conditions are met. In accordance with that agreement, TNMP has presented to interested parties a solicitation for the sale, transfer or other disposition of the Texas Panhandle area properties. TNMP's Texas Panhandle properties comprise a relatively small portion of TNMP's business as shown in the following table: Book Value of Utility Plant $ 14.5 million Annual Revenues $ 9.5 million Customers 7,300
Management believes the solicitation will lead to a successful sale of the Texas Panhandle properties, subject to various regulatory approvals being obtained. If the solicitation fails to locate a buyer who meets the conditions set forth in the agreement, TNMP is not obligated to sell the properties. The terms of the Bond Indenture require that any proceeds of the sale would be paid to the Trustee of the Bond Indenture. The proceeds may then be used by the Trustee to either redeem first mortgage bonds directly from holders or tender for redemption on the open market, at the discretion of TNMP. Other Implementation in 1993 of Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions," has resulted in increased costs of employee benefits. TNMP's settlement of its New Mexico rate application earlier this year includes recovery of post-retirement benefits for its New Mexico operations. The final order in the recently settled Texas rate case approved TNMP's adoption for Texas ratemaking purposes of the full accrual basis for post-retirement benefits other than pensions in accordance with generally accepted accounting principles. TNPE's Federal income tax returns for 1990 and 1991 are currently under audit by the Internal Revenue Service ("IRS"). In 1991, TNPE received a private letter ruling from the IRS which confirmed Unit 1 of the TNP One generating plant as being qualified, transitional property eligible for investment tax credits ("ITC"). The IRS revenue agent has informally advised TNPE that he will recommend that the private letter ruling be revoked which could lead to a denial of TNPE's claim for the ITC. Management believes the claim for ITC is correct and valid; however, if the revenue agent's position is upheld, an eventual denial of the ITC would have a negative effect on future cash flows to the extent of ITC utilized on TNPE's tax returns and any related interest and penalties. Of the $22 million of ITC at issue, TNPE and its subsidiaries have utilized approximately $5 million in the consolidated tax returns. Results of Operations Operating Revenues
The following table presents the components of the changes in operating revenues for the periods ended September 30, 1994: Increase (Decrease) From Prior Year Three Months Nine Months (In thousands) Recovery of purchased power $(2,084) 219 Customer usage 1,610 6,171 Recovery of fuel costs 225 1,090 Other revenues 100 77 Base operating revenues (54) 205 Total $(203) 7,762
Total operating revenues for the quarter ended September 30, 1994, decreased slightly from the same quarter last year. Changes due to recovery of purchased power and customer usage represented the major variances. Recovery of purchased power decreased $2,084,000 primarily from a decrease in the average cost of kilowatt-hour ("KWH") purchases charged by TNMP's suppliers. For the quarter, KWH sales increased 2.8% due to an increase in customers in all classes and increases in consumption per customer in the commercial and industrial classes of customers. For the nine-month period, a 3.8% increase in KWH sales was the primary contributor to the increase in operating revenues. About one- half of the increase in customer usage for the nine-months-to-date resulted from increased residential usage in Texas during the second quarter of 1994; warmer temperatures in 1994 compared to 1993 gave rise to this increased usage. Increases in commercial and industrial customers also contributed to the nine-months-to-date customer usage increase. An increase in the recovery of fuel costs also contributed to the nine-month operating revenue increase. Third Quarter Results TNMP's third quarter earnings for 1994 were down from 1993 mainly because of $2,721,000 in increased interest charges. Series U First Mortgage Bonds and Series A Secured Debentures were issued in September 1993 and bear higher interest rates than the rates on debt that was replaced by these securities. An increase of $990,000 in other operating and general expenses was caused primarily by increases in medical and post-retirement employee benefits and the resumption in July 1994 of TNMP's thrift plan matching contributions. The resumption of TNMP's thrift plan matching contributions is expected to add approximately $400,000 to operating expenses for the fourth quarter of 1994. Nine-Months-to-Date Results The $12.6 million loss for the nine-months-ended was primarily the result of the after-tax write off of $20.5 million in regulatory disallowances in the second quarter of this year. (Further discussion of the disallowances is provided under "Regulatory Matters" and in note 4 to the consolidated financial statements.) The higher interest rates of Series U First Mortgage Bonds and Series A Secured Debentures led to the $7,034,000 increase in interest charges; this increase contributed to the decline in earnings from last year. Based on the current outstanding debt, total annual interest charges are expected to be about $75 million. The increase in other operating and general expenses of $1,469,000 was caused primarily by the factors discussed above for the third quarter. TNMP also experienced increases in purchased power and fuel of $219,000 and $1,760,000, respectively. Purchased power increased due to an increase in KWH purchased, the effect of which more than offset a decrease in the average cost per KWH. The increase in fuel expense resulted primarily from increased KWH sales to TNMP's Texas customers. Due to the provision for the regulatory disallowances, a net loss for 1994 is expected. TNMP expects 1995 to be profitable, assuming no adverse circumstances. The recent approval by the PUCT of a $17.5 million annualized increase in revenues and cost savings anticipated from the early retirement package are expected to contribute to an improvement in results of operations. PART II - OTHER INFORMATION Item 1. Legal Proceedings. On June 1, 1994, the Third District of Texas Court of Appeals denied TNMP's motions for rehearing on the Court's decision rendered on August 25, 1993. The August 1993 ruling related to the 53rd District Court of Texas' decision on appeals of the PUCT final order in Docket No. 9491. Subsequent to the above ruling and in conjunction with the settlement agreement and PUCT final order in Docket No. 12900, all parties agreed to terminate all court appeals of Docket Nos. 9491 and 10200. Motions for dismissals of the appeals are expected to be filed in the fourth quarter of 1994. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits Refer to TNPE's and TNMP's 1993 Annual Reports on Form 10-K for an Exhibit Index. Refer to TNPE's and TNMP's 1994 Quarterly Reports on Form 10- Q for the periods March 31, 1994 and June 30, 1994 for exhibits filed subsequent to December 31, 1993. Exhibits filed herewith; 27 - Texas-New Mexico Power Company Financial Data Schedule. 27(a) - TNP Enterprises, Inc. Financial Data Schedule. (b) Reports on Form 8-K None during the period covered by this report. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TNP ENTERPRISES, INC. Date November 10, 1994 By \s\ Monte W. Smith Monte W. Smith Treasurer (Chief Accounting Officer) SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TEXAS-NEW MEXICO POWER COMPANY Date November 10, 1994 By \s\ Monte W. Smith Monte W. Smith Controller (Chief Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----